Banks lend credit

If banks lend money that is deposited with them - then surely their lending contract would state this plainly. Attached is a copy of a lending contract from the Commonwealth Bank of Australia. The first set of extracts are from the "Meaning of words" section.

Funding Date

The date on which we debit any amount to the Loan Account ...

 Loan Account

The account we keep in your name with which we debit the Loan ...


The credit, described on the front page of the Schedule, we give you under the Contract.

Notice that the "Loan" is not described as money - but rather as "credit". To fully understand what they mean in the sentences above - let's re-examine the Loan Account definition by substituting the word "Loan" with "credit". Hence a Loan Account is:

The account we keep in your name with which we debit the "credit" ...

In plain English - this means: "we will deposit the credit into your account by making a debit entry". What is interesting to note, is that nowhere is the Loan described as "money". What is repeated over and over again is that "credit" is being provided. If banks do in fact lend existing money - they would just state it. To obfuscate the fact that they lend credit - they resort to playing with words to confuse people (as above).

The word "money" only comes into use when the contract deals with the repayment of the Loan (i.e. the repayment of the credit). Here are some extracts:

We will provide the Loan [i.e. credit] to you only if ... you or the Grantor do all things and pay or arrange to pay all moneys.

You must continue making the repayments on the same day of each following month ... until you pay us all moneys owing under the [credit] Contract.


Banks lend credit and then expect repayment to be in the form of existing money.


Jerome Daly - 1968 court case

In 1968 - Jerome Daly defended charges in court when First National Bank foreclosed on his property. Jerome Daly stated that the bank failed to pay "lawful consideration" for the mortgage deed, and as such the bank could not claim the title of the property. The court found that the bank had no right, title or interest in the property - since the bank did not make any lawful consideration when it lent money to Jerome Daly.

An extract from the court record is below:

Defendent [i.e. Jerome Daly] appeared and answered that the Plaintiff [i.e. First National Bank] created the money and credit upon its own books by bookeeping entry...

Mr. Morgan [President of First National Bank] admitted that all of the money or credit which was used as a consideration was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneapolis ...

The only purpose we have in providing this information - is to demonstrate that there are court cases that have determined that banks create money by way of book entries. We do not recommend that any person repudiates a valid contract with any bank.